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Trends

Rotterdam (ARA) fuel oil - Trading USD 4 lower

Singapore fuel oil - Trading USD 1 lower

US Gulf fuel oil - Expected to open USD 2 lower

Still tensions in Hormuz (Brent: USD 127.7)

The world’s biggest crude oil exporter, Saudi Arabia, pumped close to record-high 9.87 mio. barrels of crude per day in January. Allegedly, the kingdom is building up storage facilities across the globe in expectation of higher demand on Saudi crude later this year. Although the potential storage amount is less than 15% of a global day’s consumption, the symbolic gesture has helped halt the rise in crude prices. The world's largest independent storage tank operator, Vopak, is also quoted for considering development of crude storage facilities outside the Strait of Hormuz.

Although reports from the Strait of Hormuz have turned into focus on Iranian nuclear program, the risk of disruptions in the world number 1 water choke-point for oil transport has not eased up. On Sunday, Iran’s senior spokesman on sanctions made a renewed threat by stating: "I suggest that the West take seriously our threat to close the Strait of Hormuz". The Western countries still have a large number of military machinery in the area - ready to respond to a possible escalation of the situation. A doubling of the American minesweeping fleet, plus 3 aircraft carriers on standby (plus support vessels), A French aircraft carrier, and two Israeli corvettes can hardly be considered friendly waters. President Obama has recently quoted the famous Roosevelt slogan: "Speak softly, but carry a big stick". Hopes are still that negotiations will ease tensions. In case talks fail, there is enough military hardware in the Persian Gulf to start some major volatility for oil prices.

Recommendation

We recommend clients to prepare for volatile prices ahead. Despite the whole debt debacle in western countries, global oil demand is already higher than in 2011 (and 2010, 2009, 2008). In combination with missing production, any drop in prices might be rather short-lived.